The Fairholme Fund (Trades, Portfolio)’s Bruce Berkowitz (Trades, Portfolio) announced Wednesday that he established a position in Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), his only new stock added during the first quarter.
The value-oriented investor formerly had a sizable portion of his portfolio invested in sprawling insurance conglomerate. In the fourth quarter of 2009, he held more than half a million Berkshire Hathaway B-shares, worth 8.75% of the reported equity portfolio as his second-largest position. Thereafter, he cut back on the holding as shares of AIG (AIG, Financial), now-bankrupt Sears Holdings (OTCPK:SHLDQ, Financial) and Bank of America (BAC, Financial) swallowed up more space.
Berkowitz sold the remainder of his former position in Berkshire Hathaway B-shares in the first quarter of 2012 when the price averaged around $76. In the first quarter of 2019, he started a fresh position of 106,000 shares when the price averaged $202.
The holding represented 3.76% of the equity portfolio, making it the third smallest holding of the Florida-based Fairholme Fund (Trades, Portfolio)’s six stocks. Berkowitz has invested 62.27% of the fund in Florida real estate company The St. Joe Co. (JOE, Financial), his largest position since early 2016. He has a further third of the portfolio in Fannie Mae (FNMAS.PRD, Financial) and Federal Home Loan Mortgage Corp. (FMCKJ.PFD).
Berkowitz tends to buy stocks trading at a discount to his estimate of their underlying business value. As of Jan. 31, he had 37.4% of the fund in cash “available for new opportunities,” of which Berkshire was one.
“The Federal Reserve increased interest rates by 100 basis points last year. U.S. federal and overall state budget deficits continue to soar in the midst of full employment and economic expansion,” he wrote in an annual letter. “Financial markets are volatile, but not cheap. There have been sporadic opportunities to deploy cash recently, and we believe there will be more going forward.”
Shares of Berkshire Hathaway fell roughly 5% in the fourth quarter and are up around 12% over the past year. They gained nearly 7% year to date, closing at $216.71 Wednesday.
Buffett has also weighed a major purchase of his company’s shares, something he has said he would only do if they fell below his estimate of their intrinsic value.
Berkshire’s scores of subsidiaries reported revenues of $247.84 billion in 2018, up from $239.93 billion in 2017. Operating earnings reached $24.78 billion from $14.46 billion the prior year. It ended the year with $112 billion in cash, in addition to $20 billion in other cash equivalents, with Buffett promising in his annual shareholder letter that the company would “forever remain a financial fortress.”
See Bruce Berkowitz (Trades, Portfolio)’s portfolio here.
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